Life Insurance Buyer’s Guide
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Choosing the amount of life insurance you need
Take into account your outstanding debt, home mortgage, auto, credit cards, student loans, etc.
Take your current annual income and multiply by the number of years until retirement or how many years income you want to leave for your loved one’s future needs.
Include any major expenses that might come up, retirement funds, family gifting, and any significant charitable donations you might want to make.
Tuition for education you plan on partially or fully funding for your children, spouse or grandchildren.
You may also take into account any current life insurance you have through work, existing property and assets, and retirement savings.
Gateway is happy to help you determine the amount of need. We can discuss with you or we have worksheets available.
Choose the type of underwriting process
Think of the underwriting process as the insurance company checking under the hood. They are about to enter into a contract with you and that contract will be based upon your health, age, and other vital factors about you. The underwriting process is to validate the health claims you make on your application.
full underwriting
The most common type of underwriting. This is usually required for most policies that exceed $100,000 and all over $500,000 in benefit. If you are healthy, it is often advantageous to go through the full underwriting process. The insurance company can be confident that you are healthy and will put you in a pool of other people with similar health profiles thus being able to lower your rates.
No Health exam
You will still be asked and required to attest to your health through a series of medical questions. Checks will be run on things like your prescription history, doctors notes, and even driving records to verify your health and other risk factors. These can be helpful for those who don't want to take the medical exam, want lower amounts of coverage, or would like to receive coverage on the spot.
Simplified issue
This style of underwriting will require medical questions that can disqualify you from coverage. They are usually under $250,000 in a group or employer setting or under $50,000 for individuals. In a lot of cases, the insurance company will still check your prescription drug history among other criteria, but it will not require a medical exam. Be aware: many may feel that they can lie or hide medical issues from the insurance company because they do not take a medical exam. It is important to be truthful because insurance companies will investigate doctor's records and other evidence that you may have lied on your application when your family goes to make a claim. By not being truthful, you may take away the benefit from your family trying to save a few dollars a month. An independent agent can help you determine which route is best for you for the largest benefit for your family and the least monthly cost to you.
Guaranteed issue policies
These are usually under $40,000 of coverage and they do not require any medical exam. Most do not have medical questions. Even if you have a serious illness you will still qualify for coverage but often times there is a year or two waiting period before coverage for an illness will begin. Most policies will return any premiums paid should you die of an illness before the wait period is up. The return of premium is often times repaid with interest and at a better rate than you could get in a savings account. Should you die in an accident, in most cases, coverage starts on day one.
Various policy riders will be available for most policies
Accelerated benefit riders and critical/terminal illness riders
These riders are becoming more and more common. They are subject to fine print by the individual insurance company but often times should you have a serious illness you will be able to take a portion of your death benefit while you are still alive. This is a major benefit to families who are fighting a serious illness in order to take care of medical bills and other expenses. You may use the money how you choose. Some who have their financial affairs in order use this money to take care of bucket list items. These are usually added onto policies at no charge. This helps eliminate the need for people to sell policies to a third party in order to receive money while they were still alive. These riders have become a very positive trend in the industry for consumers.
Waiver of premium
Waiver of premium rider allows an insured person or their family to stop making payments on their policy if they were to become seriously ill. This saves a monthly payment to the insurance company that will allow them to spend on other illness or family related expenses and can take a large burden off the family.
conversion privilege
Conversion rights are important riders on term policies. The conversion rider can convert all or a portion of your term policy to a permanent policy that can last the rest of your life. Due to illness we may not be eligible for coverage in our retirement years or forced to pay a very high premium cost when our term policy ends. Term policies are often purchased for our working years. It is important to protect the ability to have affordable coverage should we become ill over the long stretch of time we raise our family or during our highest earning years. These stretches are often for 20 or 30 years. The permanent policy will be issued at the same health rating you were place in when you originally bought the policy. Be sure to check if the company that you are considering has conversion options and how long they last into the term period.
Child Rider
The child rider is an inexpensive option to cover children. You may choose the amount of coverage you want on each child. The cost of the rider includes all of your children. One child is the same cost as ten so the more children you have the more cost effective the rider will be. Coverage will last at least until age 18 and some carriers will extend coverage into the mid twenties. There is often a small window to convert the child rider coverage to permanent coverage for each individual child as they age out of coverage.
additional purchase option or guaranteed insurability
This is a rider that will allow the purchaser regardless of health to purchase more coverage in the future. Companies will usually allow the purchase of additional insurance every few years. A limited amount of coverage can be added onto the original policy without the need to be healthy or prove insurability. This can be great for folks who may not be able to purchase the coverage now, are planning on having more children, or have a growing business with partners who rely on them.
Long Term Care Rider
A long tem care rider can be a life saver for a family's assets. It is designed to allow access to the death benefit for the loss of two "activities of daily life," or in other words, not being able to take care of oneself. Long term care is a slow moving hurricane directed at the United States and its aging population. Costs of a full time facility for a loved one can be near the six figure range annually. Medicare will not take care of long term care costs and Medicaid will only help once a person's assets have been depleted. A fairly inexpensive rider and a little planning can save your family's inheritance from medical expenses.
Shopping for agents
There is no way to purchase life insurance without some involvement of an agent. Its an extremely important purchase and believe it or not, your agent is there to help protect you and make the proper decisions for your family. Finding an agent you can trust or who is looking out for your best interest can be tough. Consumers don't have a lot of experience with buying life insurance and feel they are at the mercy of agents. Consumers shouldn’t need to do hours of research to combat their agents sales tactics. With the right help, you will be saved from being burned by salespeople. Here are the four major ways to buy insurance.
Buying directly from the carrier
Going directly to the carrier is usually your worst option. Calling a 1-800 number directly to the insurance company or their website you often end up on the phone with someone who can only offer one company's policy and very limited choices. Many mistakenly believe they can get the best deal calling directly to the company to avoid mark ups usually associated with going through a middleman, but this is NOT the case with life insurance. The cost of buying directly from the carrier is the exact same as buying from any number of avenues in regards to the price you pay. The only way to save is to consider many options.
Captive agent
Captive agents are those that work directly for the insurance company. They will have quotas and will often be incentivized to sell a certain type of policy over another. They typically only sell the brand name they work for. Some companies will allow their captive agents to sell competitor brands, but the agent will be paid far less to the point where they usually cannot afford to do so and will try to push their name brand regardless of the proper fit for you.
National agency
National agencies are often the sorts of call centers you see and hear commercials for where they check various types of companies while speaking with you over the phone. It’s better than dealing with a captive agent, but often times those who you're talking to have a quota. They are data processors who take your information and will never speak to you again and will not be there to help you or family in the future.
Independent agents
Independent agents like Gateway are going to be your best option. They have unlimited choice of companies to work with and more than most national agencies. You will get to know the agent and will be able to ask them questions for years to come. They will be there to help your family when it's time to make a claim. They have no quotas and you'll receive far less pressure when working with them. You won’t pay them to shop around for you and they will get you the same pricing as if you called up every insurance company directly on your own. Please see our list of carrier options for yourself. Best pricing available, highest quality options, and best advice.
Gateway has far more than life insurance to offer and because of that, we are not interested in pushing life insurance to make sales. We look at a persons full financial situation to help them make the right decisions for themselves and family. Please see for yourself and check out Gateway’s offerings.
Getting quotes from various companies and agents
You can check online, try various 1-800 numbers, or try any of the purchasing or company options from above, but there's some things you should know about how quotes are determined. The pricing for every company will be based on your age, health, gender, and lifestyle. Every company has a different objective scale they use to determine who falls into which rating class. Various vitals statistics are taken from every person and are scored. These scores help the insurance company determine your chance of dying in a given year. These scores then determine your rating class.
Rating class
Typically you are given a rating class with a name of “preferred,” “standard plus,” or “standard.” Companies use different terms for the same rating class, so let's look at them on a scale from 1 to 10. 1 being best and 10 is barely qualifying for coverage. The lower your number the lower your price per $1000 of coverage. Most people fall in between 1 and 5. Level 1 class names are usually something like “preferred” or “preferred plus” or “super preferred” for a company's number one rating and then variations of that up to a rating of five that is often called “standard.” Being 25 lbs, 50 lbs, 100 lbs overweight, having higher levels of cholesterol, unregulated blood pressure, family history of diseases, and some other more common health issues can add up to put you higher on the scale.
More serious health issues can put you in the ranges of 6 through 10. This is what is often referred to as a "rated" policy. Usually for every level higher you are on the rating scale, you can expect about a 25% increase in price. These can be for diabetes, cancer in your past, heart issues or other major health problems that you might have. In some cases, certain health issues will be a decline for coverage all together. This is why it is important to be upfront and honest with your independent agent. They can place you with the company, type of coverage, and underwriting that will be best suited to you. Independent agents have experience working with multiple companies and underwriters. Different underwriters will treat your health and lifestyle with different levels of scrutiny. This makes it very important to draw on the experience of your independent agent to find the right fit and pricing for you.
Deciding on the Brand Name
Don't be concerned if you haven't heard of the insurance company or aren't too familiar with the name. Many insurance companies do not advertise like the companies you see advertised on television, radio, and magazine ads. These companies are often well-known but for every one of these well known companies that heavily advertise, there are five others you've never heard of with very similar AM Best rating, if not better. Companies that advertise take on a large cost for marketing their products, and just like you would expect, those costs are passed on to customers. The amount of coverage and things like riders, conversion options, and rating from that company should be your main priority when picking an insurance company, and not whether you're familiar with the name. An independent agent will have access to the well-known companies you know from ads as well as many others you are not familiar with. Our recommendation will typically be the most inexpensive option combined with the best type of coverage for you. If you prefer a company that you know, feel free to ask your independent agent. They will be happy to provide you with the company with which you are the most comfortable.
Beware of TV quotes
You should be aware that pricing you see on TV commercials where an ad mentions a person received X amount of coverage for their specific age are often quoted at the “super preferred” or rating level of 1 and usually at the shortest term period of 10 years. You often need to read the fine print quickly at the bottom of the screen to see these details. This is going to be the lowest pricing available by far. Companies often show the lowest price in order to get you to call in and later due to health and other reasons we often don't qualify for that pricing or rating level. These marketers do this often times knowing that people will accept the higher rate rather than going through another application process or medical exam. There is a lot of an independent agent can do on the front end to find a company that will suit you best. Independent agents have the ability to shop your pricing with other companies if you do not receive the rating you are looking for from an insurance company. There will not be a need to do a second medical exam and much of the waiting period involved will be reduced.
Once you have a good idea what rating you'll receive from the insurance carrier underwriters, you'll be able to figure your cost of insurance. You will be able to decide the amount of coverage and pick the number of years you would want if you're buying term insurance. You can find something that fits your budget and also provides your family with the support they need should something happen to you.
The application process
Getting a good grasp of how much coverage, length of term and other options that fit your budget will typically be more involved than the application process. The application is about 15 minutes long about a third of which will be your personal information, form of payment, and discussing various riders and legalese of the application. If you are doing a medical exam, often this is all you need to fill out and sign with your agent.
The Paperwork
If you are with the agent in person you'll sign the application in a few places showing you attest that the information you gave is truthful and that you have been read various parts and will authorize bank drafts for payment. If you complete the application over the phone with your agent, you'll get a copy of the application filled out with your info in a secure email. You'll verify that your information that your agent took from you over the phone is correct and you will E-sign the application by clicking a button in the email. No need for a printer or scanner.
Immediate Coverage option
This is know as a Temporary Insurance Agreement. Typically you are not covered while going through the underwriting process. The insurance company must receive money from you to bind the contract and place it in effect. The temporary insurance agreement allows this to happen by paying your initial premium up front before you are approved. You can often times get a portion of your coverage or all of it put into effect immediately at the time of the application using this option. Please note that you would have to ultimately qualify for the coverage based on your health at the time of the application in order to receive the money. If you die tomorrow, it will not matter that you passed away before you were technically approved. It can be a great option to be covered immediately seeing that the underwriting process can take somewhere between two weeks and two months. The immediate coverage is a great way to have your family protected immediately. Longer underwriting cases usually depend on health records, the number of doctors you see, and the complexity of your case. If you are not be approved or choose not to take the coverage your money will be fully refunded.
Medical Exam
If you require a medical exam, it will be scheduled during the application process or soon after. A professional examiner will come to your home or place of your choosing and typically draw blood, take a urine sample, and ask you specific medical questions. They will also bring a scale, and check your blood pressure. This will usually take 20 or 30 minutes and they can work with your schedule and are very flexible.
You are NOT charged for the exam. All results and specimens are kept strictly confidential.
Here are some tips to keep in mind prior to a paramedical exam
Make a list of your current medications and details including dosage, frequency, and the prescribing doctor.
Avoid foods unusually high in salt content for 24 hours prior to your exam
Get plenty of sleep the night before your exam
Follow any fasting requirements
Avoid alcoholic beverages at least 8 hours prior
Avoid tobacco and caffeine in all forms 1 hour before
drink a large glass of water before your exam
avoid strenuous exercise at least 12 hours prior to your exam
Do not procrastinate for the health exam
Please do not try to become healthier or significantly change your lifestyle before applying for coverage. We highly recommend getting coverage immediately when your life and responsibilities dictate. We are creatures of habit. Despite our best intentions, it can be very difficult to lose weight or change our lifestyle. Putting off locking in a health rating could mean your family will have no protection in the event of an illness or your death. Getting protection first should be your number one priority. When you have shown a significant weight loss, stopped using tobacco, improved blood pressure or blood sugar and have maintained it for a year or more, we recommend going through underwriting again to see if you have improved your health rating. This will not hurt your rating by moving you into a more expensive class. It can only improve your health rating and lower your cost. You will need to pay a fee for the additional exam after the free initial application exam, but it is small compared to the cost savings you will receive for the rest of your life.
waiting on underwriting
When applying for a fully underwritten policy, underwriters may have additional questions based on your answers to medical questions and request records from your doctor's office. Doctors often only send out medical records to insurance companies once a month. If the day they sent out records just passed, you may have to wait up to 30 days before your medical records are sent off to the insurance company. Underwriters may also have to request medical records from specialist based on what they heard from your primary care doctor. If you have any health issues or want to speed up the process you can call your doctor or specialist and request your medical records be sent to you or directly to insurance company.
finalizing your policy
If you're approved for the pricing applied for, it's very simple process of signing and accepting the policy. You’ll receive a hard copy of your policy to keep in a safe place and to leave for your loved ones as legal proof of your contract with the insurance company.
If you're not approved as applied and get an offer at a higher rating you can accept their offer at the higher rate, or reduce the amount of coverage or length of the term in order to fit your budget. Please note, some companies have price bands where there is a price discount for higher amounts of coverage. A good agent will be looking out for you to ensure you don't drop below a band in order to save you money and see you receive a better deal per $1,000 of coverage.
After purchasing
Be sure you keep your agents information handy and speak with them every few years or when there's a life change. People often fail to adjust their coverage over time. Life goes on as we put the policy away in a drawer and don't think about it again. A good agent will call and check in with you every few years. You and your agent should periodically discuss things like adding coverage if you have additional children or responsibilities, changing beneficiaries if your beneficiary is now an ex-spouse, deceased family member, or someone else will be designated as your children's guardian.
You and your agent should receive notice if there is delinquency in payments. Be sure to update your address and banking information with your agent. It can be common for policy holders to move and change banks. The notices for failure to pay the insurance policy will arrive at their old address and its easy to allow a policy to lapse when it is normally automatically drafted from your bank account.
Agents can be there to help you add or reduce coverage as your life changes if you update them on your contact info. Understand that you typically have a major life event every few years, new home and increase in mortgage, have a child, have a death in the family, change jobs and therefore have a different amount of income to protect, have a sick family member spouse or child. Don't forget to add additional children as beneficiaries or when they turn 18 so there are internal fights in the family.